Trustmark Corporation Aktie

Good morning, ladies and gentlemen, and welcome to the Trustmark Corporation's Second Quarter Earnings Conference Call. [Operator Instructions] And as a reminder, this call is being recorded.

It is now my pleasure to introduce Mr. Joey Rein, Director of Corporate Strategy at Trustmark. Please go ahead, sir.

Good morning. I'd like to remind everyone that our second quarter earnings release and the presentation that will be discussed on the call this morning are available on the Investor Relations section of our website at trustmark.com. During our call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We would like to caution you that these forward-looking statements may differ materially from actual results due to a number of risks and uncertainties, which are outlined in our earnings release and in our other filings with the Securities and Exchange Commission.

At this time, I'd like to introduce Duane Dewey, President and CEO of Trustmark.

Thank you, Joey, and good morning, everyone. Thank you for joining us this morning. As you know, our long-time CFO, Tom Owens, was named Chief Operating Officer during the second quarter, and Joe Bond joined us as Chief Financial Officer. Both are with me this morning. Also with me are Barry Harvey, our Chief Credit and Operations Officer; and Tom Chambers, our Chief Accounting Officer. Our presentation this morning will provide a summary of our performance and discuss forward guidance before moving to your questions.

We continue to make significant progress in accomplishing our strategic initiatives in the second quarter. Loan production remained solid and deposit growth continued at attractive rates, which was reflected in our expanded net [ interest ] margin. Years of planning culminated in the second quarter with the successful conversion of our core deposit and related systems to state-of-the-art platforms, which will allow us to enhance the customer experience and operate more efficiently. This was a tremendous effort, and I'm extremely pleased with the commitment and dedication of our associates to make this transition as seamless as possible for our customers.

Now turning to Slide 3, financial highlights. Our second quarter results reflect continued momentum across the organization with strong financial performance supported by loan and deposit growth, expanded net interest income, improved credit quality and continued investment in technology. Reported net income totaled $63.5 million, representing diluted earnings per share of $1.08. Results in the quarter included 2 nonroutine transactions that collectively increased net income by $6.9 million or $0.11 per diluted share.

During the quarter, we sold a portfolio of mortgage loans that were primarily payments delinquent and/or nonaccrual totaling $73.8 million. The reserve on the portfolio exceeded the credit discount, which resulted in an increase in net income of $3.2 million. The sale drove $47.1 million overall reduction in nonperforming loans and reduced the risk profile of our 1 to 4 family portfolio. We also exchanged Visa shares during the quarter, resulting in a gain of $3.7 million net of taxes. Excluding these 2 nonroutine transactions, operating net income totaled $56.7 million, representing diluted earnings per share of $0.97. From a balance sheet perspective, loans held for investment increased $35.1 million or 0.3% during the quarter and $448.2 million or 3.3% year-over-year. Excluding the mortgage loan sale, loans held for investment increased $108.9 million or 0.8% linked quarter and $522 million or 3.9% year-over-year.

Barry will elaborate as needed, but I want to mention we had $643 million of new originations in the second quarter and $456 million in line draws. This strong production was offset in part by $318 million in CRE prepayments and $334 million in payoffs. Deposits expanded $358.7 million or 2.3% linked quarter and $955.4 million or 6.3% year-over-year. The cost of total deposits declined 4 basis points linked quarter to 1.59%, reflecting the continued strength of our attractive low-cost deposit base.

Revenue generation remained solid during the quarter. Total revenue expanded $5.3 million or 2.6% linked quarter to $208.2 million. Net interest income on a fully tax equivalent basis increased $5 million or 3.1% linked quarter, producing a net interest margin of 3.84%, up 3 basis points from the prior quarter.

Expense management continues to be a focus of the organization. Noninterest expense increased $1.5 million or 1.2% linked quarter to $133.7 million. Salaries and employee benefits expense declined $1.3 million or 1.7% linked quarter, while services and fees increased $1.8 million or 6.5% linked quarter, primarily reflecting data processing expense and professional fees related to the core deposit conversion and data center migration. From a credit perspective, credit quality improved meaningfully during the quarter. Nonperforming assets declined 47.3% to represent 0.39% of the loans held for investment.

Net charge-offs totaled $7.5 million for the second quarter. Excluding the mortgage loan sale, net charge-offs totaled $1.2 million and represented 0.03% of average loans. The net provision for credit losses was $6 million in the second quarter, excluding the $9.2 million release in the provision related to the mortgage sale.

Capital levels remain strong, and we continue to execute our share repurchase program. During the first 6 months of '26, we repurchased $40.9 million or approximately 952,000 shares of common stock, including $21.1 million or approximately 475,000 shares in the second quarter. The Board also declared a quarterly cash dividend of $0.25 per share payable September 15 to shareholders of record on September 1, '26.

Now let's focus on our '26 full year expectations, which are shown on Slide 15. As we look ahead, we are affirming our previously provided guidance for all full year '26 categories. We continue to expect loans held for investment to increase in the mid-single digits and deposits, excluding brokered deposits to increase in the mid-single digits as well. Securities balances are expected to remain stable. From a net interest income perspective, we continue to expect the net interest margin to be in the range of 3.80% to 3.85% for the full year '26. Net interest income is expected to increase in the mid-single digits compared to '25.

From a credit perspective, we expect total provision for credit losses, including off-balance sheet credit exposure to normalize, probably more in line with the first quarter than the second quarter. This expectation is consistent with our continued focus on disciplined credit risk management and the improvement in asset quality metrics we reported in the second quarter. Noninterest income is expected to increase in the mid-single digits for the full year '26. Noninterest expense is also expected to increase mid-single digits, reflecting continued investment in the business while maintaining our focus on expense discipline. Consistent with our prior messaging, we will continue our disciplined approach to capital deployment with a preference for organic loan growth, potential market expansion, M&A or other general corporate purposes depending on market conditions.

So with that, we'll now move in to our questions.

[Operator Instructions] And our first question today will come from Michael Rose with Raymond James.

I wanted to start on the loan growth side. Obviously, really good production this quarter, but still a bunch of paydowns as well. If I exclude the loan sale, it looks like you guys were kind of tracking below the guide for the year. So, I guess if you can just walk us through the comfort level of the, what would appear to be a kind of ramp in net loan growth in the back half of the year? Does that assume production continues to increase? Or does it assume that payoffs slow? Or is it a combination of both?

And Michael, this is Barry. And one piece of context as it relates to Q2 as well, as you mentioned, we had -- we reported $35 million worth of growth, add back in the mortgage sale, that puts us at $108 million. We also had $71 million worth of substandard credits that we pushed out of the bank. And so, from my perspective, I kind of like to think of those 3 credits getting pushed out of the bank as part of something that is not necessarily reoccurring, desired, but not necessarily reoccurring. So that puts us starting off about $179 million worth of growth for the quarter, Q2. And then when you're looking into 3 and 4, we still see very strong pipelines. Production has been real steady for us and -- from quarter-to-quarter.

And the payoffs, that's always the tricky part. we're seeing less payoffs than we have maturities each quarter from that CRE book. But also, we are seeing unexpected payoffs unrelated to what is scheduled to mature and leave us and the two kind of balance themselves out. So, we do expect to see to meet the obligation of the mid-single-digit loan growth for the year. We do expect, hopefully, 3 and 4 will be a little less bumpy without the mortgage sale, et cetera. But we do expect to be at that mid-single-digit level for loan growth. And like I said, we do have $71 million worth of 3 substandard payoffs that happened this quarter that we don't expect to see those every quarter. We'd love to see substandard leave the bank, but we don't get that normally every quarter. So, with that in mind, I do think the quarter looks a little better than just $35 million plus the mortgage sale get you to $108 million. I think we're probably closer to $179 million, $180 million.

That's very helpful context, Barry. I appreciate it. And that leads into the kind of the margin question. Was there any prepayment fees or anything like that, that impacted this quarter's margin because at 3.84%, you guys are kind of bumping up against the high end of the target. So just trying to balance the puts and takes as we think about the margin over the next couple of quarters.

So, Michael, this is Tom Owens. I'll start, and then I'll turn it over to Joe regarding guidance on the margin. We -- to your question directly, is there any impact from accelerated prepayment fees or anything like that? I don't believe there's a material impact from that. Although you want to weigh in, Joe?

Thanks, Tom. Yes. So, we're reaffirming our guidance of 3.80% to 3.85%. Margin is 3.84%. We do expect near-term margin pressure from deposit funding decisions. We were, as previously announced in market with some promotional campaigns, and that has increased deposit costs. We've also seen strong pricing competition within our markets, and we have responded accordingly. With the margin, we're expecting repricing of fixed rate loans and investment securities to partially offset some of that margin pressure and using the forward curve that we have, there is a rate increase and that will flow through the margin more so in the last quarter of the year. So initially, we're expecting margin pressure in the next -- this quarter. And then subsequently, we expect that to reverse, which will put us in our mid-guidance range that we have communicated.

So, sticking with the 3.80% to 3.85%, Michael.

Okay. Helpful. And then maybe just one follow-up to that. If -- I assume you're assuming a rate hike in December, so there wouldn't be much Q4 benefit or full year benefit if we didn't get it correct.

No. Actually, our forward curve has a rate increase in the month of September. So, there will be more of a benefit in the month of -- in the fourth quarter versus the third quarter.

Okay. Any idea on what that benefit might be just roughly?

We're talking in terms of margin, we're looking at a few -- a couple of basis points of margin pressure in the third quarter due to the deposit pricing. And then we expect a couple of basis points of margin improvement, pulling us pretty close to the levels that we are right now.

And our next question will come from Gary Tenner with D.A. Davidson.

Could you remind us that $643 million of new production, just how that compares to the first quarter production?

This is Barry. And it's very similar. We're pretty much in line with that as well as the additional funding on the revolvers is very much in line with the first quarter as well. We are very pleased to see some upticks at least from year-end in the utilization. The bank as a whole with all revolvers, that would be including HELOCs on the consumer side are about at 40% utilization. But I will say on the C&I side, the revolvers utilization has moved up from 32% at the year-end, moved to 37%. Now we're at 38% as of the end of the second quarter. So, we are very pleased to see that utilization. A lot of activity going on in quite a few of our markets, and I think a lot of our customers, especially on the construction side, are benefiting from that additional business.

Appreciate that. And then as it relates to kind of back half of the year, obviously, a positive outlook for loan growth, and you talked about kind of an adjusted second quarter number, if you will. A lot of banks have had kind of really strong second quarters, but have been more cautious, it seems like for the back half of the year. It doesn't feel like that's where you guys are.

A lot of ours, as I mentioned, it's not so much about production and because the pipelines are very good today for us, and our production has been steady from quarter-to-quarter. It's more about the payoffs and what we see in terms of the scheduled payoffs extending out and then how much do we see of unanticipated payoffs coming, both of which are coming from the CRE book specifically. And so that phenomenon will play itself out. We'll just have to wait and see. But it's not about the engine and the engine working and running hard. That's happening. It's about whether or not we have some more departures than we expect based upon the percent of the maturities that have been leaving us. And then, of course, what we can't see, which is the unexpected, we'll have -- we'll see some of those leave as we do each quarter. That's going to generate or result in our growth strong or weak more so than the production. The production is there and very predictable.

Got it. I appreciate that color. And then just vis-a-vis the buyback, I think last quarter, you talked about $70 million of kind of being the low end of what you'd expect for the year. Any changes to the kind of back half of the year outlook on the buyback?

I would say probably closer to in line with where we've been in the first 2 quarters. That's been right around $20 million per quarter. We continue to see that into the future. But again, it depends a little bit on what's going on in the market or any other activities that we have. But I would expect that up to equal to where we've been in the first 2 quarters.

And our next question will come from Catherine Mealor with KBW.

So, you're now past your big conversion, which I know is a big lift. I just wanted to see if you could give us an update on some efficiencies or benefits that you're going to have now that that's behind you. Any upcoming tech or AI investments that you're making and what impact any of that may have on the expense outlook?

And Catherine, this is Barry. I'll start and Duane may want to chime in as well. From the standpoint of the conversion, I think moving to a supportive environment as opposed to a self-supported environment, it's going to allow us over time to reposition a lot of the jobs that supported our previous deposit system as it did with our previous loan system. And we're going to be shifting some of those jobs into different roles. And then there may be an opportunity to, over time, not have some of the positions. So, the application type positions where we were actually doing all the maintenance to the system previously, now that we're running an FIS solution on payment, deposits, teller, sales platform, image system. From that standpoint, we're going to need to determine what our needs are once we're fully settled in, which we will be later this year. And the same is going to be true on the frontline side. We did staff up during the second quarter to make -- first quarter and second quarter to make sure we had as many people manning the station, if you will, waiting on customers, making sure that we were able to do everything we needed to do during the conversion window. Those things, there's a lot of attrition in that area of the bank already. So, if we see that we don't need quite what we staffed up to, to make sure we had more than adequate number of resources in the branches, if that begins to move down, which it can because, like I said, it's a lot of turnover in those positions, then we may be able to decide that we don't need quite as much as we staffed up to, that would be an efficiency gain as well. And then as far as being able to go in and make adjustments to the system, do things we need to do probably to drive more business, there's definitely opportunity for us to go into and establish a different pricing mechanisms, whether it be on the deposit side to possibly have some -- offer some products and offer some services that we've not been able to previously. Kind of hard to quantify the value of that today, but we do definitely know that we've been holding off on making some changes on our deposit system that we felt like would be advantageous for us, whether it be getting more customers or getting at a better price. We'll be able to do that now that we have moved to a vendor support solution. So, we're very excited about that.

Duane, is there any comments you want to add to that?

Yes, I would -- yes, I'd like to add. We can't overemphasize how significant that core conversion is for us. And we've talked to many of the analysts out there. That was a 45-year-old core that we were operating that for the last 20-plus years were self-supported. It was a major lift. It was pretty much all hands on deck across the organization. Every depository customer, every commercial customer, every consumer was impacted by the change. Therefore, our staffs were entirely focused on the process of conversion, post-conversion interaction with top clients and all that. So, to have a solid overall financial quarter in the midst of that, we're extremely pleased. And like I said, really, really couldn't be prouder of our associates for dealing with that process. So, we can't underemphasize that or overemphasize that. So, to put some meat on the bone, we added roughly 50 to 55 new associates throughout our retail system to handle and fully staff our branch locations for customer interaction. That was an increase in FTEs for the quarter. So now over time, that will trend back downward. And I think at the end of the day, maybe anywhere from 10 to 15 would be permanent. So, we'll see some reduction right off the bat in that regard across the system. Then secondly, post core conversion, there's a 3 month or -- we're right now normalized or pretty much normalized throughout our company. So, there's been a settling, as Barry mentioned, a settling in since then of the whole process and new ways of doing business. So now we have settled in, we made a comprehensive presentation to our Board yesterday on our AI efforts. Our Chief Information Officer, Chris Davidson, made an outstanding presentation. We have plans that we see will create efficiencies in the future. It's a little early to start to pin numbers and give forecast in terms of real positive impact of that. But we do see tremendous impact across the organization. And now with that transition and conversion behind us can really turn our attention to that -- those efficiency gains, Catherine, that you're hoping to see.

Yes, that's great. Okay. Awesome. I know that was a really big deal for you. Also I'm glad you gave your time. And then my follow-up was maybe just on that, now that you've got the conversion behind you. I know M&A has been something that you've been thinking about. Any kind of update on that? And especially now that the conversion is behind you, I assume that, that is M&A outlook is maybe an easier lift. But kind of curious how you're thinking about M&A.

Yes. I think -- I mean, it's fairly similar to what we've guided, but we've had some trepidation in the past, yes, with the conversion upcoming and some of the other things we've dealt with. So, we are now fully considering options there. We do feel we have a lot of options. And I would say from our perspective, we're seeing increased discussion and interest, and it is all size ranges across the board. So, there's a lot of discussion going on, and we would love to participate in M&A, but remain disciplined and focused on doing good things that add to our company and make our company better. And so, I'll emphasize small, medium, large. There are a lot of different things under consideration across the industry, and we're no different. And so, we're looking at every opportunity to make our company better.

And our next question will come from Feddie Strickland with Hovde Group.

Just wanted to touch on deposit growth. I mean, do we see that step down a little bit in the back half of the year, just given the affirmation of the guide and a really strong run rate this quarter? Or could we maybe just see the higher end of what can be considered mid-single-digit growth for the year?

Feddie, this is Joe Bond. Thank you for the question. We're managing the deposit growth in relation to the loan growth activity, aligning the two. And we do have deposit campaigns in place right now. We're not trying to achieve a much higher pace of growth. So, we're maintaining the guidance in mid-single digits. And that's what we expect in the remainder of this part of the year. I would like to just touch on a little bit, too, in terms of the competition and pricing being much higher than what we've expected. It may be the case that we will increase our deposit costs and as a result, also improve the margin at the bottom line, which will help our margin outlook as well. So, we're looking at both, managing the appropriate growth of our deposits and the associated costs and the impact on the margin on the bottom line.

Understood. That's really helpful. And just wanted to ask on credit. I mean, obviously, great to see NPAs down by nearly half following the loan sale here. Does that impact at all forward expectations for charge-offs? And is maybe something in the mid-teens rather than the low 20s, maybe more appropriate going forward just given the step down in nonaccruals?

This is Barry. I would say the answer to that is yes. I do think that the reduction in NPAs, NPLs definitely has the potential to reduce the actual losses we experienced going forward. And I think that's probably as simple as. But I think from the standpoint of provisioning, Duane mentioned earlier that we're thinking for the second half of the year, it would be more like some blend between the first quarter and the second quarter when you exclude the mortgage sale. I think that's probably where we would be there as it relates to the provision. But as far as the charge-offs go, I do think that the lower nonaccruals and -- that we have, the less charge-offs we're going to have going forward, although our charge-offs have been pretty muted already, but I would think that, that is a fair assumption.

Okay. Great. And just one last one, if I could. Just from a big picture economic growth perspective, it seems like there's a good bit of new investments across the Gulf South. Can you talk about maybe what you're seeing on the ground and maybe what your expectations are, what you're hearing in terms of potential household income and just economic growth potential there?

Yes. Feddie, I would say economic activity and -- so what we're most familiar with the state of Mississippi is off the charts relative to historic levels within our state. And it does relate partially to the data center builds that are occurring, and there are multiple data center builds across the state. But along with that, there's other manufacturing in support of everything from battery generation to our -- we have a Nissan plant, a Toyota plant. We have timber. We have -- on the coast, we have shipping. We have multiple different areas of economic investment and activity across the state that are at levels never seen before in Mississippi. I would suggest that, that spills definitely over into Louisiana and spills over into Alabama, both of which are markets, although we don't have the physical presence in Louisiana, we do bank numerous commercial relationships in that state. So, all of that plus Alabama is really, really positive for economic activity. As it impacts -- I've been to a couple of different presentations where we've had different leadership across both governmental, private sector, et cetera, talking about ongoing past data center construction, all of that still looks really, really positive. So, I would say from a Trustmark perspective, we're as positive about the Southeastern U.S. economic activity as we've been in a very long time, if ever before. It's just really dynamic right now.

I would say, Duane, that also is reflected in our line utilization that we've seen, especially on the revolving C&I side. And then we are seeing more activity [indiscernible] from the municipality side as well as these projects have to be funded. And so, we are seeing some good activity there as well.

And our next question will come from Stephen Scouten with Piper Sandler.

A couple of quick follow-ups for me maybe. In terms of the NIM conversation there, it sounded like thought maybe you could expand the NIM even with some deposit cost increases. So would the implication be there that loan yields would trend higher from here, maybe a couple of basis points a quarter on new production? Maybe within that, what were you seeing this quarter in terms of new production yields?

Okay. So Stephen, thank you for the question. This is Joe. In terms of NIM and my comment about deposit costs increasing and the benefit to margin, it is pulling deposits on balance sheet that may have associated fee income with them and changing the geography of that where the cost would be higher. However, it is lower than other sources of funding, therefore, improving the margin in the bottom line. And so that is one factor that we're evaluating.

The other part of the question with the weighted average booking for the quarter, and that was going to be about 6.28%, and that's about 55 basis points better than the average for the portfolio as a whole. So that's still a positive story from when you're comparing just new bookings to the average for the portfolio as a whole.

Got it. Very helpful. Perfect. And then just last thing for me. Just curious on any updated numbers on hiring that was done during the quarter. I know that's been somewhat active over the last 2 or 3 quarters. Curious if there was any more meaningful activity on the hiring front from a production standpoint?

Yes. I will -- I'll take that one quickly. And as I mentioned in one of the prior questions, I mean, second quarter, we were focused on our core, and that really was focused on transitioning on adding the personnel we needed in the branch system for the most part, and that was 50-some new associates out there, which then the -- what we have referred to prior in terms of new production talent out across the system, that slowed in the second quarter and was really not a focus. So we are ramping back up now as we speak into the second half of the year and really focused on building again back to the commercial and some of the other production categories, mortgage and other areas where we see opportunities. So -- but when you look at the second quarter, it was really all hands on deck focused on getting our company converted.

Our next question will come from Christopher Marinac with Brean Capital.

I had a similar question that you already answered about the net charge-offs changing. So, Barry, I'm curious if the CECL rules allow you to revisit kind of lifetime losses? Or was that already done in the release you had this quarter?

Right. That's correct, Christopher. We're -- every quarter, we're updating our historical averages to recalibrate our probability of default and loss given default. So, as we do encounter lower as we move forward, that will, in fact, result in potentially a little bit lower provisioning. Make sure I'm catching your question correctly there.

Yes, that's correct. So, it's an ongoing process, and we may see some further release [indiscernible]

We should. We should. Now the loss we took on the mortgage sale obviously flows in and impacts the mortgage book itself. But the reality of it is the discount we took 2 years ago, same quarter on the mortgage sale was $0.29. The discount we took this time, same criteria for the loans in which mortgages which we sold, the discount was $0.19. So, while we maybe were provisioning around $0.23, that's the portion of the $0.29 previously that was credit related. Now that same portion is credit related to the [ $0.19 ] is $0.13. So, for these mortgages that meet this criteria that we just sold, we were provisioning $0.23. Now we're positioning $0.13 on a go-forward basis. So that more than anything else will help us on our provisioning for those loans that meet the criteria we just sold in the future.

Great, Barry. And just a question on deposits. I mean the success you had in deposits this quarter, is there any sort of lower bound on the loan-to-deposit ratio where you don't want it to get below a certain level?

I'll start, Chris, this is Tom Owens. I mean, historically, 85% has probably been the bottom end. You've heard us talk for any number of quarters now on being intent on maintaining the loan-to-deposit ratio below 90%. We're kind of midway between 85% and 90% now. So, I would say 85% is a practical matter.

And this will conclude our question-and-answer session. I'd like to turn the conference back over to Mr. Duane Dewey for any closing remarks.

Thank you again for joining us on our second quarter call, and we look forward to connecting again after the third quarter. Hope everybody has a great rest of the week, and we'll talk to you then.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

Good morning, ladies and gentlemen, and welcome to Trustmark Corporation's First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. It is now my pleasure to introduce Mr. Joey Rein, Director of Corporate Strategy at Trustmark. Please go ahead.

Good morning. I'd like to remind everyone that our first quarter earnings release and the presentation that will be discussed on our call this morning are available on the Investor Relations section of our website at trustmark.com.

During our call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and we would like to caution you that these forward-looking statements may differ materially from actual results due to a number of risks and uncertainties, which are outlined in our earnings release and our other filings with the Securities and Exchange Commission. At this time, I'd like to introduce Duane Dewey, President and CEO of Trustmark.

Thank you, Joey, and good morning, everyone. Thank you for joining us this morning. With me are Tom Owens, our Chief Financial Officer; and Barry Harvey, our Chief Credit and Operations Officer. We continue to build upon strong momentum from our earnings in 2025 and are pleased with our strong performance in the first quarter of 2026. Our results reflect continued loan growth, stable credit quality and an attractive core deposit base.

In addition, we experienced continued growth in noninterest income, while noninterest expense remains unchanged, reflecting our continued focus on expense management. In our presentation this morning, I will provide a summary of our performance and discuss forward guidance before moving to your questions. Now turning to Slide 3, financial highlights. Our first quarter results reflect continued significant progress across the organization.

Net income totaled $56.1 million, representing diluted EPS of $0.95 a share. This level of earnings resulted in a return on average assets of 1.2% and a return on average tangible equity of 12.58%. From a balance sheet perspective, loans held for investment increased $203.7 million or 1.5% linked quarter and $636.5 million or 4.8% year-over-year. Our loan portfolio remains well diversified by loan type and geography.

Our deposit base expanded $212.7 million or 1.4% linked quarter, driven by seasonal increases in public deposits. Year-over-year, deposits increased $631.8 million or 4.2%, driven by growth in personal and commercial deposits. The cost of our total deposits in the first quarter was 1.63%, a decrease of 9 basis points from the prior quarter. Our strong cost-effective core deposit base is a continuing strength of Trustmark.

During the first quarter, we repurchased $19.8 million or approximately 477,000 shares of stock, which represents 0.8% of shares outstanding at year-end 2025. As previously announced, we have authorization to repurchase up to $100 million of Trustmark common shares during 2026. This program continues to be subject to market conditions and management discretion.

Revenue in the first quarter totaled $203 million, a seasonal decrease of 0.6% from the prior quarter and an increase of 4.2% from the same quarter in the prior year. Net interest income, fully tax equivalent, in the first quarter totaled $163.5 million, which produced a net interest margin of 3.81%, which is unchanged from the prior quarter. Noninterest income in the first quarter totaled $42.3 million, up 2.7% from the prior quarter and represents 20.9% of total revenue.

Noninterest expense in the first quarter totaled $132.2 million, unchanged from the prior quarter and up $8.1 million year-over-year. Diligent expense management continues to be a focus for the organization. From a credit perspective, net charge-offs in the first quarter were $1.3 million, representing 4 basis points of average loans in the first quarter. The net provision for credit losses in the first quarter totaled $2.7 million.

At the end of the first quarter, the allowance for credit losses represented 1.16% of loans held for investment. Again, very solid credit performance. We have maintained our strong capital position as reflected by our CET1 ratio of 11.7% and our total risk-based capital ratio of 14.37% at March 31, 2026. The Board declared a regular quarterly dividend of $0.25 per share payable June 15, 2026, to shareholders of record on June 1.

Now let's focus on our forward guidance, which is on Page 15 of the deck. In January, we provided full year guidance for 2026 as well as 2025 benchmarks upon which the guidance is based. This morning, we are affirming the guidance previously provided. We expect loans held for investment to increase single digits for the full year 2026 and deposits, excluding brokered deposits, to increase mid-single digits as well.

Security balances are expected to remain stable as we continue to reinvest cash flows. We anticipate the net interest margin to be in the range of 3.80% to 3.85% for the full year, while we expect net interest income to increase mid-single digits. From a credit perspective, the total provision for credit losses, including off-balance sheet credit exposure is expected to normalize, while noninterest income for the full year 2026 is expected to increase mid-single digits as is noninterest expense.

We will continue our disciplined approach to capital deployment with a preference for organic loan growth, potential market expansion, M&A or other general corporate purposes depending on market conditions. At this time, now we'll open the floor up for questions.

[Operator Instructions] The first question comes from Catherine Mealor with KBW.

It was nice to see the guidance was generally unchanged. And just thinking about the margin, we're taking rate cuts out of our estimates generally across the board. It feels like your NIM guide is still for that to remain pretty steady in the 3.80% to 3.85% range. Can you just talk about the puts and takes within the margin without rate cuts, maybe where you're seeing new loan yields and where you're seeing new deposit costs coming in? Just help us model that going forward.

Catherine, this is Tom Owens. I'll start. So yes, we, as you know, base our guidance on market implied forwards, which now effectively have removed any further Fed rate cuts this year. And so I think the most simple way to think about it to start is you look at our guidance on deposit costs, we're anticipating a few basis points of decline here in the second quarter on a linked-quarter basis. We're also anticipating a similar magnitude of decline in loan yields.

And then in the background, you've got securities yields, which will continue to grind a little bit higher from the ongoing repricing of HTM securities. And so I think when you net that all out, you're probably looking at a basis point or so of accretion on a linked-quarter basis each quarter this year is what we're currently modeling. We're at 3.81% in the first quarter. And so that gets you to the middle of the range, 3.83% or so.

As far as puts and takes, I mean, it's -- when you look at the industry data, loan growth continues to outpace deposit growth. And so it is -- it's really remained a competitive environment for deposits. When you look at what will be driving most of the linked quarter decline in deposit costs, we do have a bit more benefit we'll get there from CD repricing.

But then in the background, you've got sort of a countervailing migration for exception pricing on money market accounts, for example. So I think when you add all that up, we're talking fractions of a basis point probably in terms of which way we break on deposit cost, which way we break on loan yield, which way we break on net interest margin.

Great. And I guess just a bigger picture question. You had really great improvement in profitability throughout '25. It feels like looking at your guidance for maybe more steady in '26, but just on a bigger balance sheet as [indiscernible] improving. Is that the way to think about it? Or are there levers that you see where we can actually get the ROA and ROE moving higher this year?

Well, when you think about pre-provision -- this is Tom, continuing on here. When you think about pre-provision net revenue, as we've guided in the past, mid-single-digit balance sheet growth with a stable to slightly expanding net interest margin should get a solid mid-single-digit PPNR growth. I know when you look at the headline in terms of what we published first quarter of '26 actual versus first quarter '25 actual, for example, PPNR looks pretty flat.

But there's always puts and takes in things like noninterest income, I'll tell you that if you adjust for some lumpy items we had in the year ago quarter and lumpy items this quarter, you end up closer than -- closer to 3% growth year-over-year than down slightly. And when you include that, you wind up at more like a 5% growth in revenue. I'd say the same thing on the expense side. We're probably doing better on the expense side than what you see looking at the numbers.

We've made strategic investments in revenue producers, particularly in growth markets. I think if you adjust it out for that, you'd probably be more in the neighborhood of 5.5% in terms of expense growth, year-over-year first quarter. So that gets you closer to neutral in terms of operating leverage. Of course, we're trying to drive positive operating leverage, and that's part of those investments that we're making in revenue producers, particularly in our growth markets. So I think that's the lever ultimately that can drive greater profitability.

Catherine, I'm sorry, just quickly, one other somewhat of a wildcard in that mix is the mortgage business, where we've had pretty negative net hedge ineffectiveness over an extended period of time here as the market adjusts, as rates adjust, et cetera, is that -- that is a wildcard in the mix. We can't forecast it necessarily. It's difficult to pinpoint. But if the mortgage business turns around and/or the negative hedge ineffectiveness is different than it has been in the past, that can make a fairly significant swing in noninterest income, which then, as you know, affects your question. So I'd just add that as a wildcard in the mix a bit.

Great. Thank you for that reminder. Congrats on your new role, Tom. We'll miss NIM guidance from you going forward.

Thank you, Catherine. Really, I greatly appreciate that. Really excited about this next phase.

The next question comes from Feddie Strickland with Hovde Group.

Just wanted to stick with the noninterest income discussion, specifically on the wealth side. I know equity markets were a little bit more of a challenge through quarter end, but can you provide any sort of update on what you're seeing so far just in terms of AUM and maybe an outlook for that line in the second quarter?

I'll kick in there, Feddie. It is dependent upon market appreciation and so on, which dramatically affects revenue in both the true wealth trust business as well as the brokerage side. So those are factors that are somewhat out of our control. But -- then you also add in new business development and the like, which is actually fairly solid.

We -- as we talk about our growth market initiatives that we've mentioned here in the last several calls, that includes the wealth management business, which includes adding new production talent in high-growth potential markets. We're optimistic there. We've seen improved production out of that side of the equation. The second part I'd add is that we made a platform change last year in our brokerage business. We went from an LPL platform to a Raymond James platform.

We, in the latter half of 2025, spent a lot of time focused on that transition and are now fully stabilized there and have fairly solid expectations for improved performance out of our brokerage division. And a good chunk of that is managed assets. So that is a bit dependent on the market as well, but still, we are expecting continued progress and stabilization on that side of the equation. So we're comfortable with the mid-single digits guide but see some potential there.

Appreciate that. That's helpful. And just switching gears to capital, I guess, specifically on the share repurchase side. I think last quarter, you talked about maybe looking at $60 million, $70 million worth of repurchases this year. You've done, I think, about $20 million so far. Should we expect any sort of change in the cadence of repurchases throughout the next couple of quarters?

So Feddie, this is Tom Owens. So yes, we were really pleased with our ability to deploy nearly $20 million via share repurchase in the first quarter while supporting over $200 million of loans held for investment growth while maintaining our capital ratios essentially, very little change in our capital ratios on a linked-quarter basis. I would say that we're kind of leaned into it, so to speak, in the first quarter, given the opportunity, the downdraft in bank stock prices. We liked the price.

We feel good about that. I think it also demonstrates our ability to deploy that amount of capital via share repurchase and support robust loan growth. So I think if you think in terms of $20 million per quarter or $80 million for the year, that's probably the high end, assuming that we do continue to generate the same level of consistent loan growth. And on the low end, I'd probably mark that up a little bit. I think we're probably thinking $70 million to $80 million deployment for the full year.

The next question is from Michael Rose with Raymond James.

Just wanted to start on loan growth. It looks like you guys had a really good quarter of C&I loan growth, obviously, some paydowns in some other places. If I annualize this quarter, it's about 6%, that would be the kind of the top end of the mid-single-digit range.

So I guess what I'm trying to figure out is the effects of competition and/or paydowns expected to maybe potentially slow the growth from here? I'm just trying to understand maybe why in a seasonally slower first quarter, why we wouldn't see that guide raise? And if we could just get a sense from you guys for production and paydowns as we move forward.

Michael, this is Barry. Yes, as you can tell, we did have nice growth, especially in the C&I side, and it was very diversified in terms of the different growth industries that we saw as well as the fact that on the CRE side, we were up $41 million. Really to the heart of your question, we did have a meaningful amount of maturities on our CRE book scheduled for the first quarter.

A large majority of those did not occur, and they migrated either later into '26 or out to '27, '28. So we do still have headwinds that we're going to have to deal with over time. But that's the key for us is to -- the more spread out that we could see those payoffs coming, the better we're able to deal with them in terms of new production, new fundings, et cetera, throughout the year.

So I think with -- we're fully expecting without any type of catalyst that would bring about a large increase in payoffs that what we saw in the first quarter will continue throughout the year. And you'll continue to see projects who need more time to fully stabilize to get the best price when they go to market to sell the project, take that time. And then what you always see, Michael, is a lot of projects on the CRE side start off out of the gate with delays during the permitting, construction, they hit rock, whatever the case may be.

And so there is a need for some additional time beyond just the scheduled maturity, at least the initial scheduled maturity for them to fully stabilize. And we're seeing that today. So we're hopeful that the payoffs, which will eventually come from our C&I book -- CRE book will be a little bit spread out as they were during the first quarter and push on into other quarters, whether it be 2026 or into 2027, 2028.

Michael, meanwhile, as you noted and Barry noted, C&I production pipelines are strong. We continue to see opportunities across the full portfolio. C&I has been good. And then as we've talked in the last couple of quarters, we continue to be focused on adding new production talent across the franchise.

It's a little bit slower in the first quarter in terms of new talent, but we continue to focus in that area in high-growth markets. And so we're -- as Barry suggested, with good solid pipelines, good solid new production, continued production on the CRE space to offset some of these -- some of the headwind from paydowns is what we're focused on achieving.

Okay. That's great color. Very helpful. Thanks for that. Maybe if I can just ask separately on credit. You did have a little bit of pickup in NPLs. I think it was related to one loan. Just looking to get some color there. It looks like the reserve came down though a little bit. So just was looking for any sort of updates in kind of past dues or criticized classifieds that might have driven that allowance reduction.

Yes. Our coverage moved up from 1.15% to 1.16% as far as the reserve is concerned. And we -- the net provision, of course, as you know, is $2.74 million. And then on the funded side, we were $4.7 million. So we -- as it relates specifically to the one credit, it is a CRE project, and it's the majority of the increase that we experienced in non-accruals and of the change that we saw, the $12.3 million. The credit itself was substandard already.

It just moved into nonaccrual. The situation is one of those where the borrower just does not see a value in their -- from their perspective to continue to make payments based on the appraisal, there's a lot of equity in the project. We do have it impaired and reserved appropriately based upon that analysis of the valuation. So in that particular case, there is an LOI in place.

They have an LOI in place, has not been converted to a PSA at this point. So there's always a chance that they're able to move the project out, and we'll continue to work with the customer and to determine what the best options are for the bank and for them. But it was not something that was surprising to us just given their set of circumstances, but it was very specific to their set of circumstances.

Along the lines of CRE, Michael, while they didn't come to fruition during the first quarter, we are very encouraged by the fact that a lot of the potential paydowns that we anticipated may be happening in the first quarter on some substandard credits, we're encouraged that they will possibly come to fruition later in the year. So from that standpoint, we see more positive news from the standpoint of more either upgrades or payoffs coming out of the CRE book than we do deterioration.

And then maybe if I can just slip in one more, just following up on Feddie's question on capital return. I know last quarter, you guys talked about kind of organic growth and buybacks as being kind of the preferred avenue for deployment. But any sort of updated or changed thoughts on M&A versus the prior 90 days?

No changes, Michael, really. I mean, we're still interested. It's part of our strategic plan to consider M&A for expansion purposes in key markets. I would say, start of the year, very active, lots of discussions up, down and sideways. That said, I think with the war and related economic issues, et cetera, high gas prices, et cetera, it seems like a lot of the -- there's been a lot of just tempering of those discussions pending the outcome or pending some stabilization of things.

And so we continue to focus on the organic strategy and continue to build relations out there and would be very interested in that process. As I said, as part of our strategic plan, but no real change in that thought process.

The next question is from Gary Tenner with D.A. Davidson.

I had a follow-up on Catherine's NIM question. Tom, your comments about expecting loan yields to continue to drift a little bit lower here, a little bit surprising to me. So I'm just curious what the driver of that is? Is it -- do you have some higher-yielding loans maturing? And I'm also curious kind of what the new production yields look like in the first quarter.

And I'll start. This is Barry, and then let Tom weigh in. Just from the standpoint of what we see every day, and it's more specific to the CRE side than it is the C&I side. But we are seeing -- those are all going to be -- for us, those are all going to be 30-day SOFR plus a spread. And we do see a little lower spread today than we have at some points in the past as it relates to the CRE projects, regardless of which type you're talking about. It is, of course, Chris (sic) [ Gary ], very competitive in terms of that marketplace.

So when you think about stuff rolling off for us, that was 48 to 60 months ago, those spreads to that 30-day SOFR were better than they are today of what's going on in funding in the near term. So -- and then a lot of times, Chris (sic) [ Gary ] in order to -- when we do have payoffs scheduled on the CRE side, like everyone does, we do pursue those opportunities to refinance existing debt that we think it makes sense and fits our parameters.

And when you do refinance existing debt to replace outstanding balances with outstanding balances, those are going to be a little -- priced a little less than your construction mini-perm was that you made 4 or 5 years ago, where you had construction risk, you had stabilization risk, you're replacing that with something that doesn't have construction risk, doesn't have stabilization risk when it's fully funded.

And for that reason, it's priced accordingly. So you may be replacing something that was construction mini-perm risk embedded in it. Your spread is a little bit higher on those deals than the ones you might replace it with if you're able to refinance a deal -- a fully funded deal away from somebody else that's fully stabilized, if that makes sense.

Yes. And Gary, I would add, it just -- again, it depends on the mix of the lumpiness or not of maturities within a quarter and then the mix of the maturities, floating rate versus fixed rate. Of course, you still have a bit of a tailwind on the fixed rate loan side of those repricing higher. So it's very much mix dependent. And as I said in my comments earlier, we're getting down to dust settling here, so to speak, in terms of the aftermath of the last Fed rate cut.

You look at some, I'll call it, normalization or steepening of the yield curve is certainly helpful where we're trading now in terms of where fixed rate loans coming on the books versus fixed rate loans paying off. So there's a lot at play there, but we're not talking about big, very substantial linked quarter changes in loan yields or deposit costs. And as I said, a simple way to think about it is once we get past this quarter, relative stability here over the remainder of the year with a very gradual grind higher in terms of NIM.

Yes, I appreciate that. That's great color from both of you. And then just you mentioned a couple of times kind of leaning into hiring in the growth markets. And of course, this is not the first time you mentioned it, but I'm just curious if you could kind of put some numbers around what you accomplished there in the first quarter and any kind of targets or expectations for the rest of the year?

I can put it in context of new bodies added. I don't know if we can break it down that specifically in terms of production at this point. But I think we messaged to the Street in the third quarter, it was in the 21 new production talent across our franchise. Fourth quarter was more like 13-ish new hires. And in the first quarter of 2026, it was in the range of 7 new hires.

So the first quarter is a tough hire quarter because bonuses are paid and so on. So we will be refocusing our efforts in that the rest of the year. But I don't believe we can really break it down. I mean they're all still getting their feet on the ground and building their pipelines and so on. Like I was saying earlier, we are seeing a very solid build of pipeline here into the year. So are seeing some positive shoots from those efforts.

Yes, you net that all out, Gary, and it's not meaningfully impactful here for the full year in 2026 in terms of dropping to the bottom line. But the intent, obviously, is to be making the investment to bring the producers on board here in 2026 and then the return on that ramping up in future years.

[Operator Instructions] The next question comes from Christopher Marinac with Brean Capital Research.

Tom, I wanted to follow up on kind of net new deposit accounts, particularly in the commercial channel as we see success with C&I, should we see more deposit flows from that area over time?

Yes, Chris. So I do not have those numbers in front of me. But yes, we would certainly anticipate accelerated growth in commercial deposit accounts and thereby accelerated growth in commercial production or balances. I think I have a report here that I could look at pretty quickly.

I mean we have seen, Chris, acceleration. If you think in terms of year-over-year growth in average balances, we have seen really good acceleration in commercial deposit balances. If we were having this exact conversation 1 year ago, it would have looked something like a 1% to 1.5% decline in year-over-year first quarter commercial balances.

Over time, that has steadily migrated more positive, 3 quarters ago, that was closer to breakeven, 2 quarters ago, it was plus 2%. And now in the fourth quarter and into the first quarter here, we're on the high side of 4%. So we've had steady acceleration of growth in commercial -- average commercial deposit balances outstanding on a year-over-year basis, and it's absolutely our focus to continue that trend going forward.

Great. Thank you for sharing that. And then just a quick question on expense operating leverage in general. Should we see further progress into next year? Just kind of curious how we translate these recent efforts into kind of the future quarters.

Yes. Our mindset coming into this year was particularly considering 2 things, considering the investments we're making in revenue producers and the investments we're making in technology, our mindset coming in was if we could have a breakeven year in terms of operating leverage, that would be doing a pretty darn good job.

So both of those things coming in are clearly headwinds to us achieving positive operating leverage here in 2026. But again, the idea on both of those, whether it's investment in producers or investment in technology is to generate returns on those investments and drive operating -- positive operating leverage going forward.

The next question is from Stephen Scouten with Piper Sandler.

Most of my questions have been asked and answered. I just maybe have one follow-up around deposit costs. The quarter-over-quarter improvement that you're projecting in the slide deck, is that more indicative of incremental reductions you think from the CD repricing? Or was that more about kind of where you exited the quarter and the progression of deposit costs throughout the quarter?

So Stephen, this is Tom. Good question. As I said, I believe, earlier, the majority of the benefits, the tailwind to NIM accretion from the ongoing CD book repricing is now diminishing. And so that 1.60% guide that you see for the second quarter, that is -- that's basically where we are running currently. In fact, I think month-to-date here in April, we're probably running at about 1.59%. We've had some favorable mix here in April.

We're probably running at 1.59%. So the 1.60% reflects a couple of things. As I also mentioned earlier, you've got some ongoing repricing of exception money market accounts as we accommodate customers where warranted by the nature of the relationship and the profitability of the relationship, accommodating their request for higher rates.

And then it's been our practice as we get further into the second quarter and into the summer months, we generally engage in promotional deposit campaign activity, which would put some upward pressure on deposit costs that -- which sort of counterbalances what's left there in terms of ongoing downward CD repricing.

So again, that's why from my perspective, I think the right way to think about it is as we're coming into the second quarter, a bit lower loan yields, a bit lower deposit cost and essentially relative stability from that point forward and a slow gradual grind higher in net interest margin. And again, with the dust settling, we're talking a basis point or 2. We're talking about fractions of a basis point of which way they round.

Does deposit costs and loan yield both round in a favorable way or unfavorable way? So I think we're getting down to more relative stability in that regard. We came into the year with a very tight guidance range in terms of net interest margin, 3.80% to 3.85%, and we're maintaining that range. We continue to feel good about being for the full year somewhere right in the middle of that range.

Next, we have a follow-up question from Feddie Strickland with Hovde Group.

Just real quick, I had a quick follow-up on the M&A comment. I think you said up, down, sideways. Was that just a figure of speech? Or should I think that you consider it like an MOE type transaction or even an upstream partner?

I'm not going to commit one way or the other there, Feddie. I mean it's there are all -- as you've seen in the marketplace, there are all sorts of combinations happening in -- from larger banks to smaller banks. And so it's pretty wide-open field. That's not our focus. But it is -- the discussions out there are pretty significant across the board.

This concludes our question-and-answer session. I would like to turn the conference back over to Duane Dewey for any closing remarks.

Thank you again for joining us this morning. We look forward to catching back up at the end of the second quarter, and we'll talk then. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to Trustmark Corporation's Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

It is now my pleasure to introduce Mr. Joey Rein, Director of Corporate Strategy at Trustmark.

Good morning. I'd like to remind everyone that a copy of our fourth quarter earnings release and the presentation that will be discussed this morning are available on the Investor Relations section of our website at trustmark.com.

During our call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and we'd like to caution you that these forward-looking statements may differ materially from actual results due to a number of risks and uncertainties, which are outlined in our earnings release and in our other filings with the Securities and Exchange Commission.

At this time, I'd like to introduce Duane Dewey, President and CEO of Trustmark Corporation.

Thank you, Joey, and good morning, everyone. Thank you for joining us again this morning. With me are Tom Owens, our Chief Financial Officer; Barry Harvey, our Chief Credit and Operations Officer; and Tom Chambers, our Chief Accounting Officer.

Trustmark's momentum continued to build throughout the year, resulting in record earnings in 2025. Our traditional Banking business drove continued loan and deposit growth, a strong net interest margin and solid credit quality. Our Mortgage Banking business achieved increased production and significant improvement in profitability, while revenue in our Wealth Management business reached an all-time high. In our presentation this morning, I will provide a summary of our performance and discuss forward guidance before moving to your questions.

Now turning to Slide 3, our financial highlights. Our fourth quarter results reflected continued significant progress across the organization. Net income totaled $57.9 million, representing diluted EPS of $0.97 a share, up 3.2% linked-quarter and 5.4% year-over-year. For the full year, Trustmark achieved a record net income of $224.1 million, representing diluted earnings per share of $3.70. Net income from adjusted continuing operations increased $37.8 million or 20.3% in 2025. This level of earnings resulted in a return on average assets of 1.21% and a return on average tangible equity of 12.97%.

From the balance sheet perspective, loans held for investment increased $126 million or 0.9% linked-quarter and $584 million or 4.5% year-over-year. Our loan portfolio remains well diversified by loan type and geography.

Our deposit base declined $131 million or 0.8% linked-quarter, driven in part by a decrease in public fund deposits of $219 million. Year-over-year, deposits increased $392 million or 2.6%, driven by growth in commercial and personal balances of $568 million. The cost of total deposits in the fourth quarter was 1.72%, a decrease of 12 basis points linked-quarter. Our strong cost-effective core deposit base is a continuing strength of Trustmark.

During the fourth quarter, we repurchased $43 million or 1.1 million shares of our common stock. For the year, we repurchased $80 million or 2.2 million shares, which represented 3.5% of outstanding shares at year-end 2024. As previously announced, we have authorization to repurchase up to $100 million of Trustmark common shares during 2026. This program continues to be subject to market conditions and management discretion.

Revenue in the fourth quarter totaled $204 million, while revenue for the full year totaled $800 million, a record year at Trustmark. Net interest income in the fourth quarter totaled $166 million, which produced a net interest margin of 3.81%. For the full year, net interest income totaled $647 million, up 8.4% from the prior year. Noninterest income in the fourth quarter totaled $41 million, up 3.3% linked-quarter. In 2025, noninterest income totaled $164 million, representing 20.5% of total revenue.

Noninterest expense increased $1.2 million or 0.9% linked-quarter. For the year, noninterest expense totaled $512 million, an increase of 5.5% from the prior year. Diligent expense management continues to be a focus of our organization.

From a credit perspective, net charge-offs in the fourth quarter were $7.6 million and included 1 individually analyzed loan, totaling $5.9 million, which was reserved for in prior periods. Net charge-offs represented 0.22% of average loans in the fourth quarter. For the full year, net charge-offs were 13 basis points of average loans.

The provision for credit losses in the fourth quarter totaled $1.2 million. The provision for both loans held for investment and off-balance sheet credit exposure were impacted by positive credit migration, loan and unfunded commitment growth, and the macroeconomic forecast. In 2025, the provision for credit losses was $12.9 million. At year-end, the allowance for credit losses represented 1.15% loans held for investment. Again, very solid credit performance.

We've been active on the capital management front, issuing $170 million of 6% fixed-to-floating sub debt in the fourth quarter, the proceeds of which were used to repay $125 million of existing sub debt and for general corporate purposes. This action further strengthens our regulatory capital position. At year-end, the CET1 ratio was 11.72% while our total risk-based capital ratio was 14.41%.

Additionally, the Board announced a 4.2% increase in Trustmark's regular quarterly dividend to $0.25 per share from $0.24 per share. This dividend is payable March 15, 2026, to shareholders of record on March 1 and takes our full year dividend to $1 per share.

As previously mentioned, we repurchased $80 million of Trustmark common stock during the year, including $43 million in the fourth quarter. At year-end, tangible book value per share was $30.28, an increase of 2.3% from the prior quarter and 13.5% from the prior year. I'm very pleased to report that through share repurchase activity and quarterly dividends, Trustmark returned approximately 61.8% of net income to 2025 shareholders.

Now let's focus on forward guidance, which is on Page 15 of the deck. We're providing full year guidance for '26 as well as the 2025 benchmarks upon which the guidance is based. We expect loans held for investment to increase mid-single digits for the full year 2026, and deposits, excluding brokered deposits, to increase mid-single digits as well. Securities balances are expected to remain stable as we continue to reinvest cash flows.

We anticipate the net interest margin will be in the range of 3.8% to 3.85% for the full year, while we expect net interest income to increase mid-single digits. From a credit perspective, total provision for credit losses, including off-balance sheet credit exposure, is expected to normalize.

Noninterest income for full year 2026 is expected to increase mid-single digits, as is noninterest expense. We will continue our disciplined approach to capital deployment with a preference for organic loan growth, potential market expansion, M&A or other general corporate purposes depending on market conditions.

I would point you to pages 17 and 18, showing Trustmark has made significant improvement in its financial performance over the last several years. We're committed to maintaining that momentum into 2026.

And with that, I would like to open the floor up for questions.

[Operator Instructions] The first question comes from Stephen Scouten with Piper Sandler.

I guess, this morning, obviously, we've got another transaction that kind of impacts some of your larger markets, along with a lot of recent activity. And I know we talked about maybe 21 production hires back in the third quarter. Curious how many new hires maybe you had in fourth quarter, if any, and if these deals kind of accelerate any of your thoughts around talent acquisition in '26?

Stephen, in the fourth quarter -- I think in the third quarter, we announced 29 total new hires, 21 of them production oriented. In the fourth quarter, that number was in the range of 13 new production hires for the quarter. They're in all markets and several different disciplines throughout the company. So we continue to focus on organic expansion and bringing in new talent into the organization.

As we talk and we'll go through the rest of the question-and-answer session here, we'll talk about loan growth and seeing some of the diversified loan growth that, through these new hires, we're starting to see C&I, our equipment finance team and so on, they all continue to now show improved performance and improved growth. So we're very pleased with that effort.

As it relates to the M&A activity, that does create some opportunity. I mean with each transaction, both in our home core markets as well as in a market like Houston and so on, it does create some disruption, both clients and personnel. And so we continue to monitor that and stay in touch in the markets and continue to recruit actively. So we see it generally as a positive and look forward to that continuing throughout 2026.

Okay. Great. And maybe just -- my other question would be kind of around the guidance for 2026, around credit in particular, just this idea of normalizing, I guess, credit costs. Can you frame that up at all potentially or kind of give some color on what that means to you all just kind of within the context maybe of net charge-offs for '25 were around 13 basis points, if I'm looking at that correctly? So just kind of wondering how to frame up what you might expect within that normalizing from a charge-off and a reserve perspective.

Stephen, this is Barry. I guess, starting with the charge-off piece of it. I would think that 13 to 15 basis points of average loans is kind of where we would expect to see ourselves on an ongoing basis. We don't really see anything that unusual about 2025. We probably did have a few credit -- a few larger commercial credits than we do today that we got resolved during 2025, and that did result in a little bit of loss in some of those credits. And we really don't have, today, we don't have those credits that we're dealing with or ones of similar size. So I would think 13 to 15 basis points of average loans for net charge-offs would be a good range for us, what we might expect to see.

And then as it relates to provisioning, to us, 14 to 18 basis points of average loans would seem like a range we might fall inside of. A lot of that is going to be predicated upon how much more improvement we see from a credit quality standpoint. We've had substantial improvement in credit quality during 2025. For example, criticized for the year down $181 million, classified were down $57 million for the year. So as we work through some of these credits, some of those upgrades and some of those are going to be paydowns as well as moving out of the bank.

As we continue to experience that, then that obviously will help our provisioning. And that is obviously what helped our provisioning quite a bit this quarter as well as it did in Q3. And so as -- if that trend continues, which we don't know if they will or won't, but we do expect some improvement, but if that trend continues at that pace, then we might expect a little lower provisioning cost than we're anticipating right now. But right now, 14 to 18 basis points of average loans feels about right.

Fantastic. That's great color. Congrats on all the progress in 2025.

The next question comes from Gary Tenner with D.A. Davidson.

Great color on the provision question. I just wonder, on the other guidance areas, I mean, it looks like the guidance is -- really falls well within expectations kind of exiting '25, into 2026. Can you talk about just the lever points that you see as it impacts the guidance, whether it's growth, fees, expenses, kind of where you see the most sensitivity and leverage potentially as we work through the year?

Well, Gary, I'll start. This is Tom Owens. As you said, our guidance is pretty consistent with the range of analyst estimates coming into '26.

With respect to levers in terms of how it falls to the bottom line and EPS, obviously, loan growth is going to be a key driver. We've talked a little bit also about capital deployment during the year and I think those things are related. We've been pleased with our ability to continue to drive capital accretion at the same time that we've been supporting solid loan growth and deploying capital via share repurchase. So probably the biggest levers are probably going to be that relationship between loan growth and capital deployment.

Yes. I would add to the response there. So we're seeing improving conditions in the mortgage market. And we saw it in '25 starting to take shape. Things that impact that business, some of the MSR hedging and those sorts of things showed significant improvement. And so that reflects in our noninterest income category. As mentioned in the prior comments, in 2025, we had record net income in our Wealth Management businesses -- excuse me, at least record revenue in those businesses. And so I think we've invested there.

We continue -- and when we talk about production talent, we're adding talent in those businesses as well across our footprint. So we see potential for some improvement, at least as we've guided mid-single digits, if not better, in some of the noninterest income categories. Expense management is going to be a continued focus for us. We'll see where that leads in the year, but at this point, we're good at mid-single digits. So really it's a continuing improving position across the whole both income statement, and as Tom noted, the balance sheet plays a critical role in that, obviously.

I appreciate the color there. And then just a follow-up, specific to Wealth Management. In the fourth quarter, the pickup in revenue there sequentially, what the driver was?

It's just general improvement in asset values. Asset values drive fee revenue. But it's a combination -- asset value improvement, I think, is a positive in that business, but also new account acquisition. We've invested -- like I said, we invested in the business. We have new talent, we have great leadership in that business, and a really focused effort across the organization on cross sales, on cross-pollination across our commercial businesses and the like. So it's all starting to really take hold and take shape and show improvement.

I would also note, part of that business, we do have a brokerage team also that we converted from one brokerage platform to another in the third and fourth quarters. That new platform on the brokerage side is also generating new revenues and new opportunities for us. So we're optimistic on that front as well.

So to be clear, there's nothing unusual on that line in the fourth quarter, more just kind of increase on...

Nothing unusual.

And equity value. Okay.

That's accurate, yes.

The next question comes from Feddie Strickland with Hovde Group.

I wanted to start on the expense guidance. Curious to see what the cadence of expense growth throughout the year, is it relatively steady as you make these investments in new talent? Or is there any particular quarter that's higher?

He's asking about the timing of the timing of increases in noninterest expense.

Throughout the year?

Throughout the year. And was it chunky?

Yes. Well, what we -- what you see is -- this is Tom Chambers. What you see is, yes, the last half of the year, we end up having our annual merit increases across the company. So you're going to have a natural increase starting on July 1 of that quarter. And then really there's nothing else unusual, unless it's mortgage commissions and revenue-generating business.

Yes. I would just say, yes, the second half year, we do tend to -- merit increases go into effect July 1 each year, and so that hits in the second half of the year. Assuming performance is sufficient and so on, sometimes in the second half of the year we true up for year-end bonuses, production, commissions, those sorts of things. And so yes, I would say the second half of the year typically is a bit more -- a bit higher level of increase than in the first half of the year.

And across our overall organization, we continue to look at and make technology investments and other things that are just the normal course of expense increase that impacts us every year. But I would say going into 2026, that's pretty much it.

Got it. That makes sense. And just wanted to ask conversations on M&A. I mean, would you say a deal is any more or less likely in '26? And just a quick refresher on preferred geographies, what you're looking for in terms of partners. Just curious in general on M&A.

Yes. I would say, first and foremost, I mean, the increase in discussion and consideration, there probably is a fairly significant increase across our markets and the markets we serve and where we have interest. That has not changed really as we've talked for some time between Houston up to Dallas, Arkansas, Louisiana, Tennessee. I mean we cover such a large geographic footprint that are very attractive markets, and we have interest in those markets. We've talked about size ranges of $1 billion up to $10 billion.

But it's all opportunistic. We have to see the opportunity. We have to see a good cultural fit. And we continue to create relationships and build rapport, but we are not going to be focused on doing a deal. We're focused on our organic strategy at this point. And if an M&A opportunity presents itself in a good market, that provides talent, that provides market opportunity and so on, then we will take advantage of that.

We do feel from an overall operating profitability, capital, et cetera, perspective, we're in the best position we've been in to do that in quite a while. But we're going to be cautious and selective in that process. And we have felt that the buyback has been a good route to utilize capital to this point, and we'll continue to consider that as we move forward as well.

The next question comes from Christopher Marinac with Janney.

Just to continue on the M&A question from Feddie. Do you think that there's a scenario where you don't do an M&A deal because there's too much happening around you? Stephen mentioned the Texas deal this morning. Obviously, you have a much bigger merger in your backyard that's happening this year with a competitor going away. Is there a scenario where you don't do anything on M&A, you simply focus organically just to take advantage of opportunities in people exclusively?

I think that's a great point, and that's, again, there is a good amount of disruption and good companies all moving their organizations forward. But at the end of the day, it creates opportunities sometimes for those of us in the marketplace. And so that is absolutely a very accurate consideration for us.

And as we have talked about our organic strategy, if you look at markets, like Synovus, Pinnacle, Cadence, Stellar, I mean, they're all in markets we serve, they all create some opportunity. And we're looking forward to considering what options we have for that organic strategy and we see it as significant. So I think that's a very good point. And I think it is a strong enough consideration that, yes, you may see us not do a deal.

Great. And then just to follow up on sort of the deposit success that you talked about in the prepared remarks. So are you doing anything to incent deposits differently than you had in past years?

So Chris, this is Tom Owens. And so I'm guessing with your question, you're talking about internal incentivization. And the answer there is yes. That has been an increasing area of focus for us, obviously, is deposit customer acquisition and balance acquisition. And so when you look at, for example, our CRM bonus templates and the drivers in the templates, we've increased our emphasis on deposit growth there.

And I'll just say, I mean, we've been pleased with, when you look at our competitive stance on deposits and where we rank in terms of deposit costs, we've been pleased with our ability to grow balances cost-effectively. You look at personal and commercial balances are up 4.4% year-over-year. And I think on an average balance basis in the fourth quarter, over year-ago quarter, they're up 4% plus. So we've been very pleased with our ability to do that to continue to fund solid loan growth.

The next question comes from Catherine Mealor with KBW.

All right. One little nitty question on the margin. Tom, can you -- do you have any color you can give us on where deposit maybe ended the quarter or exiting the quarter just to kind of get a sense as to where we're going to start '26 just as we factor in the full impact of the recent rate cut?

Yes. It's a little difficult to hear you there, Catherine, but I think I got the question. This is Tom Owens. And so before I answer that specifically, Catherine, I also want to make a point, because when I looked at the pre-call notes from the various analysts, I'm not sure everyone picked up on it.

But our net interest margin, that 2 basis point linked-quarter decline of -- from 3.83% in the third quarter to 3.81% in the fourth quarter was essentially a function of the accelerated recognition of capitalized costs from the 2020 sub debt issue, which, as you know, we refinanced during the quarter. So that was about $1.1 million that we took through the income statement, through net interest income specifically. And so adjusted for that, we would have been at 3.83%, which would have been our second consecutive quarter at that level.

And so now this gets back to your question, because it's also the jumping-off point for our guidance for NIM in 2026. But the range we put out there of 3.80% to 3.85% is pretty tight relative to the ranges that you see from some other banks. But we're running right in the middle of that range right now at 3.83%.

And then with respect to your question about deposit costs in our guidance, is for a decline from 1.72% to 1.61% here in the first quarter. And I think if you looked at month-to-date in January, we're running at about 1.63%. And so of course, we -- our CD book continues to reprice here during the quarter, and so that should drive us 1 basis point or 2 lower for the full quarter, all other things equal.

That's super helpful, and thank you for pointing out that other $1 million cost that you mentioned. And then my last question is just on the buyback. Is it fair -- I mean, I know growth is improving and you've got M&A out there, and your stock is inexpensive and you've got a lot of capital. I mean, is it fair to put your entire authorization in our expectations? For the year, do you think you have enough capital where you could really lean into the buyback today but still have enough capital for a future deal? Or is it -- or are you a little bit more price-sensitive on that? Just trying to kind of put a range on buyback opportunity.

Okay. Well, there's a lot there, but I'll start with giving you the range and the way to think about it. So you've heard us talk in the past about a continued accretion in our regulatory capital ratios and talk about 12%, for example, as a ceiling on CET1 in terms of where we would want to operate. We ended 2025 at 11.72% in our CET1, and without any deployment via share repurchase. Even with funding very solid, even robust loan growth in 2026, we -- our internal projections are that we would be -- we would end '26 slightly above 12%.

So as Duane said, we've got the $100 million authorization. I mean a way to think about it is if we did no deployment via capital, assuming very solid loan growth, we would end the year '26 slightly above 12%. If we did every $0.01 of the authorization of $100 million, that would take us down to about 11.5%. So somewhere in between there, call it a range of $60 million to $70 million, is what would essentially keep our capital ratios where they are. And again at 11.72%, that's kind of mid-range between 11.5% and 12% in terms of CET1.

So to your question of is it fair to put all $100 million in your model, I think that is -- I would probably guide you probably more to a range of $60 million to $70 million in all likelihood. And that range is based on trying to manage our capital levels where they are today, assuming the solid loan growth that we have in our projections.

This concludes our question-and-answer session. I would like to turn the conference back over to Duane Dewey for any closing remarks.

Well, thank you for joining us today on the call. Again, 2025 was a record year for Trustmark. We're very pleased and proud and look forward to keeping that momentum into 2026. We look forward to joining back up with you for our first quarter call at the end of April. You all have a great rest of the week.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to Trustmark Corporation Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. It is now my pleasure to introduce Mr. Joey Rein, Director of Corporate Strategy at Trustmark.

Good morning. I'd like to remind everyone that a copy of our third quarter earnings release and the presentation that will be discussed on our call this morning are available on the Investor Relations section of our website at trustmark.com. During our call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and we would like to caution you that these forward-looking statements may differ materially from actual results due to a number of risks and uncertainties, which are outlined in our earnings release and our other filings with the Securities and Exchange Commission. At this time, it's my pleasure to introduce Duane Dewey, President and CEO of Trustmark.

Thank you, Joey, and good morning, everyone. Thank you for joining us again this morning. With me are Tom Owens, our Chief Financial Officer; Barry Harvey, our Chief Credit and Operations Officer; and Tom Chambers, our Chief Accounting Officer. Trustmark's momentum continued to build in the third quarter. Our performance reflected diversified loan growth and stable credit quality, along with cost-effective core deposit growth. During the quarter, we continued to implement organic growth initiatives and added established customer relationship managers and production talent in key markets across our franchise. These investments are designed to further enhance financial performance and shareholder value. Today, in our presentation, I will provide a summary of our performance in the quarter and discuss our forward guidance before moving to your questions.

Now turning to Slide 3, the financial highlights. From the balance sheet perspective, loans held for investment increased $83 million or 0.6% linked quarter and $448 million or 3.4% year-over-year. Our linked quarter growth was diversified and led by C&I, other loans and leases, municipal loans and other real estate secured loans. Our deposit base grew $550 million or 3.4% linked quarter. Noninterest-bearing deposits grew at a faster clip of 5.9% linked quarter or by $186 million. The total cost of deposits in the quarter were up 1.84% or 4 basis points linked quarter, very effective cost-effective growth, very cost-effective growth in core deposits.

Trustmark reported net income in the third quarter of $56.8 million, representing fully diluted EPS of $0.94 a share, up 2.2% from the prior quarter and 11.9% from the prior year. This level of earnings resulted in a return on average assets of 1.21% and a return on average tangible equity of 12.84% in the quarter. Net interest income expanded 2.4% to $165.2 million, which produced a net interest margin of 3.83%, an increase of 2 basis points from the prior quarter. Noninterest income totaled $39.9 million, up 0.1% linked quarter and 6.3% year-over-year. Noninterest expense increased $5.8 million or 4.7% linked quarter and included approximately $2.3 million in nonroutine items, including the establishment of a $1.4 million reserve for a single property in ORE and $900,000 in professional fees related to the conversion to a state banking charter and other corporate strategic initiatives.

Salaries and employee benefits increased $3.2 million linked quarter, principally due to annual salary merit increases effective July 1, increased annual incentive accruals and the cost of additional customer relationship managers and production talent associated with our organic growth strategies. Credit quality remains solid. Net charge-offs were $4.4 million and included one individually analyzed loan totaling $3.1 million, which was reserved for in prior periods. Net charge-offs represented 13 basis points of average loans in the third quarter. Net provision for credit losses was $1.7 million, and the allowance for credit losses represents 1.2% of loans held for investment. Again, very solid credit performance. From a capital management perspective, each of our capital ratios increased during the quarter. The CET1 ratio expanded 18 basis points to 11.88%, while our total risk-based capital ratio increased 18 basis points to 14.33%.

During the quarter, we repurchased $11 million of Trustmark common stock. In the first 9 months of the year, we repurchased $37 million of stock. We have $63 million in repurchase authority for the remainder of this year. This program continues to be subject to market conditions and management discretion. Tangible book value per share was $29.60 at September 30, up 3% linked quarter and 10.1% year-over-year. The Board also declared a quarterly cash dividend of $0.24 per share payable December 15 to shareholders of record on December 1.

Now let's focus on our forward-looking guidance for the year, which is on Page 15 of the deck. As you can see, we're tightening the range of our guidance for net interest margin and affirming all other previously provided guidance for the full year. We affirm our guidance and expect loans held for investment to increase mid-single digits for the full year '25. Similarly, we affirm our guidance of low single-digit growth in deposits, excluding brokered deposits for the full year '25. There is no change in guidance regarding securities as they are expected to remain stable as we continue to reinvest cash flows. We've tightened the anticipated range of the net interest margin for the full year. The range is now 3.78% to 3.82% for the year compared to our prior of 3.77% to 3.83%.

We have affirmed our expectations for net interest income to increase in the high single digits for 2025. From a credit perspective, the provision for credit losses, including unfunded commitments is expected to continue to trend lower when compared to full year '24. This is, of course, an affirmation of the prior guidance. There is no change in our noninterest income and noninterest expense guidance. Noninterest income from adjusted continuing operations for the full year '25 is expected to increase mid-single digits, while noninterest expense is expected to increase mid-single digits as well.

We will continue our disciplined approach to capital deployment with a preference for organic loan growth, potential market expansion, M&A and other general corporate purposes depending on market conditions. As noted earlier, we do have remaining availability in our Board-authorized share repurchase program that we will consider opportunistically. You may have noticed the addition of 2 new slides in our deck on Pages 17 and 18. I encourage you to take a look at the progress we've made in improving our financial performance over the last several years. We're very committed to maintaining that momentum here moving forward. With that, I'd like to open the floor to questions.

[Operator Instructions] The first question comes from Stephen Scouten with Piper Sandler.

You guys mentioned, and apologies, I missed like the first minute or 2 of the call, but I know you mentioned in the release, some of the expense growth was on progress on the new hire front. Can you give any color around kind of year-to-date hires quarter -- what you saw in the quarter and kind of what you have planned moving forward from a hiring perspective, assuming that's still kind of focused Houston, Birmingham, Atlanta, I think as you've spoken to previously?

Right. Great question. And I'll start, Stephen. We hired approximately 29 new associates in the third quarter alone. 21 of those 29 new associates are production related, either direct producers or direct support of production. And those across all business units from commercial real estate, equipment finance, corporate banking, commercial banking and the markets you noted are absolutely the markets of focus. Houston, Birmingham, Huntsville, Alabama, the Panhandle of Florida, South Alabama and Atlanta. And the 21 are included in each one of those markets. So we consider that a major focus for the organization here moving forward. I don't know that we'll hit those levels in every quarter. We likely fourth quarter will not reach that level of new associates. But moving into the coming year or 2, we're very focused on that organic strategy in those key markets.

Okay. And would you expect to see some incremental expense build in the fourth quarter kind of related to the recent hiring levels? It seems as though to get to the increase in mid-single digits year-over-year, there needs to be a little bit of an uptick in the expense base from this quarter, but I want to make sure I'm thinking about that right.

Stephen, this is Tom Chambers. Yes, that's true. What hit us in the third quarter for the additional new hires was about $400,000. And of course, that's because we're hiring throughout the quarter, fully loaded, we would expect that to increase during the fourth quarter.

I will add to that, Stephen. There are some, we'll call them, nonroutine parts of that expense because there are recruiting fees. There's onetime signing bonuses and things like that, that are mixed into that. So at a run rate level, Tom noted the amount, but I would say there were some nonroutine things that would be included in that total. Additionally, as you know, I mean, the expectation is we're adding the talent to produce revenue as well. And so we will factor that into coming revenue projections.

Sure. That makes sense. And then lastly for me, just around the share repurchase. I think you said previously maybe $10 million to $15 million a quarter is the right way to think about that. But just kind of curious, given how bank stocks have been trading and just how rapidly you're building capital, if you would think about upsizing that range potentially and kind of how you think about that earnback on the repurchase versus potential M&A?

Stephen, this is Tom Owens. I'll start. So yes, we've been very pleased at our ability to continue to deploy capital via repurchase while supporting loan growth and continuing to drive nice accretion to our regulatory capital ratios, I think we're up 18 basis points linked quarter. Certainly, as you suggest, as our capital levels continue to build, it may well be the case that as we enter '26 that we'd probably lean more proactively into share repurchase depending on how loan growth plays out. I think for the fourth quarter, it's reasonable to assume that we'll remain on the pace that we've been, which is about $50 million for this year.

The next question comes from Michael Rose with Raymond James.

So there's clearly been some M&A within some of the markets that you guys operate on. I was just wondering if you could discuss maybe some of the opportunities, maybe expanding on Stephen's question just for hiring as we move forward. And if you think that kind of a mid-single-digit growth rate for -- I know it's a little early, but for next year is something we should contemplate given some of the opportunities that are in front of you and given some of the hires that you put in place.

I'll start. Michael, absolutely. We think that and prior experience would say that every M&A deal in given markets does present opportunity. It's both to some extent on the hiring side and to some extent on the customer, customer acquisition side. And we look at it like that. I mean it's a competitive world. The one that was announced here recently in the last day or so is very much -- there's a lot of overlap in our markets. And we compete against them today. We have competed against them for a very long time. So it goes with the territory. No real change, I don't think from a real competitive perspective, but we do see it as creating opportunity for us. And it is really in predominantly all markets that we serve today. So I think good opportunity ahead.

Okay. Helpful. And then maybe just stepping back, I do appreciate the new slide you put in. Obviously, there's been some real good progress due in part somewhat to the sale of the insurance business and the restructure a couple of years ago. What's kind of the next evolution here, I guess, is what I'm trying to ask. Where do you think some of those numbers could go? And maybe if you can discuss some of the puts and takes of kind of getting to whatever the new numbers as we move over the next few years might be? Like what are some of the opportunities you guys see? And then what are some of the headwinds you guys think you're going to face?

So Michael, this is Tom Owens. I'll start. First and foremost, when you look at those slides, I think the fourth quarter is likely to continue those trends. And then to your question about the longer term and what's the next evolution, we're focused on continuing to drive competitive growth in PPNR, which we think mid-single digits is reasonable in that regard. And I think when you add the deployment of capital from our strong run rate profitability, as I just mentioned earlier, as we head into '26, we're likely to -- we'll see where loan growth shakes out. Clearly, that's our preferred method of deployment for capital. But given that we're approaching now 12% in terms of CET1, I think it's safe to say that we'll probably deploy at a more proactive rate in 2026. So I think we're on pace this year to retire something like 2% of our shares outstanding. And so I think if you add mid-single-digit growth in PPNR to low single-digit decline in EPS outstanding, I think we're likely to wind up in high single-digit growth in EPS, would be a baseline. And then I'll let Duane and maybe Barry speak to what the opportunities might be from there.

Well, I would add to that. And as we already discussed in the prior question, it allows better financial performance, all in all, allows us to invest in that organic strategy. And so we're very focused. We're very focused on key growth markets. We believe we operate already in very significant growth markets in our footprint. And we're focused in all business lines really at expanding in those key markets. And the improved financial performance allows us the ability to do that a little more aggressively than we had in prior years. So we're very optimistic there. A market like Huntsville, Alabama, that would be considered one of the top growth markets in the country, we hired a fantastic group of new bankers in that market. Very, very excited about them joining Trustmark. We've added teams across a couple of the other markets I already mentioned, Atlanta, Birmingham and so on. So the improved financial performance allows us to invest in that organic strategy. And then the last comment I'd say, of course, there's a lot of activity right now. We're very aware of what's going on, on the M&A front around us. There are discussions across the board up and down. So we're staying in tune with that. In a lot of cases, that creates additional opportunities. So we're on it. We like the organic strategy, though, at this point.

The next question comes from Feddie Strickland with Hovde Group.

Just wanted to kick it off with a clarification question on expenses. It sounded like you might be guiding towards a little higher expenses in the fourth quarter. Is that the case? Because I thought you might have that $900,000 of nonroutine professional fees and maybe the ORE expense come down a little bit.

This is Tom Chambers. Yes, we expect, obviously, those nonrecurrings should fall off, but we're still guiding to mid-single-digit growth year-over-year in expenses. So if you look at our fourth quarter, we will have a slight increase in expense or expected expense without nonrecurring items.

Got it. And then just shifting gear to the margin. Just given the asset-sensitive balance sheet, is it fair to assume we see a little bit of compression from here or near term and maybe a little bit of recovery just as deposits catch up down the road?

This is Tom Owens. I'll take that. It's sort of a yes and no on that. First of all, you saw we printed a 2 basis point linked quarter increase in net interest margin for the quarter from 3.81% to 3.83%. We've talked in the past about the ongoing repricing of the back book fixed rate loans for both loans and securities providing a bit of a tailwind. And I think that's what you saw with the 2 basis point increase in loan yield quarter-over-quarter. We are slightly asset sensitive. And so when the Fed cuts, we have to be pretty proactive in terms of cutting deposit rates to maintain net interest margin on a linked-quarter basis. And clearly, that is our intention. We anticipate that the Fed will cut tomorrow or later today and then again in December. And then I think we have 3 cuts penciled in for 2026, so ending the year at about 3% at the top end of the range.

So yes, in the short term, there can be some headwind. It just depends on how depositors and competitors in the market react to those cuts that we make in deposit rates. But we are optimistic about maintaining NIM in this general area of 3.80% to 3.83%. When I look at analyst estimates for the fourth quarter, I think I see something like 3.83%, which is the number we just presented. And then when I look at full year estimates for '26, I think I see a median estimate there of 3.82%. And so I think those are reasonable numbers. I think that there might be some choppiness quarter-to-quarter, as you suggest. But as we manage our way through it, on average, I think we would see net interest margin continuing to be in about this range where we are now. And I'll make the point, we're at about 3.80% year-to-date. And so I think we're stabilizing here, but it might be choppy quarter-to-quarter.

Just one other quick question. I was just wondering if you could talk about trends in classified and criticized loans. The provision was a little lower this quarter. So I was kind of curious if either of those were flat or maybe even went down a little bit.

Sure. Frank, this is Barry. I was just going to mention that we did have a nice trend down of about $49 million in criticized loans this quarter. That gives us a trend down of about $123 million for the first 3 quarters of this year. So very encouraged by that, especially given the fact that we kind of were flat in the first quarter. So that $123 million has really come in the last 2 quarters. And so we're very encouraged by that positive trend. Like most of our peer banks, we trended up all during 2024, criticized, classified. And then we flattened out in the first quarter, felt like that was an inflection point. It turned out to be. And then we've been moving down at a nice pace, both Q2 and Q3 of this year. So we're very encouraged by that. That is part of our lower provision. That is 1 of probably 4 factors that went into the provision being lower this quarter than it has been in Q1 and Q2.

The next question comes from the line of Catherine Mealor with KBW.

Just one follow-up on the margin. Just if we can kind of look at some of the components, it was interesting to see deposit costs increase a little bit this quarter. And I know we've got the cut and maybe another one today coming. But can you talk a little bit about where you're seeing deposit cost trends and maybe how you're thinking about the beta over this next round of cuts relative to what we've seen over the past round of cuts. And as kind of growth improves and maybe competition picks up, if it's fair to model maybe a little bit more conservative beta moving forward.

Sure, Catherine. This is Tom Owens. Yes, the linked quarter increase in net interest margin, it almost builds on the answer that I just gave to Feddie, which is we are asset sensitive. We do have an extremely valuable deposit base, which we continue to demonstrate as we manage our way through interest rate cycles. Because we're slightly asset sensitive, we try to be proactive in pricing down deposits to maintain net interest margin. And it's always a balancing act, right? You're always trying to optimize that. I mean you want to reduce rates paid on deposits as much as you can at the same time as you're trying not to drive unwanted attrition of profitable customers. And so most of what we saw in the third quarter is what I'll call the pushback, right, the extent to which you cut deposit rates, but depositors push back.

And so certainly, we have a framework in place where when depositors push back, the more profitable the customer and the stronger the pushback, the more willing and able we are to accommodate with exception interest pricing. And so that's largely what drove that linked quarter increase, Catherine. We also engaged in a pretty proactive promotional deposit campaign during the third quarter. Our loan-to-deposit ratio at the second quarter had risen to 89% from 87% at year-end '24. We wanted to manage that back down a bit. We were very pleased with the execution of that campaign. So that was a bit of a driver to that, but not a big driver. I'd say in the third quarter, it continued to be what I would characterize as a surprisingly competitive environment for deposits in our space with loan growth in the industry generally outpacing deposit growth somewhat.

So surprisingly competitive in the third quarter. And I'd say the same thing I said in my prior answer to Feddie, which is the extent to which we're able -- we give you guidance when you look at Slide 9 and when you look at our outlook for fourth quarter deposit costs dropping from 1.84% to 1.72%, that reflects the intended price cut or deposit rate cuts that we'll be making as the Fed cuts today. And the extent to which we achieve that is a function of those 2 factors. It's a function of how well that's received or tolerated by the deposit base, which in turn is also a function of what the competitive landscape looks like, how do our competitors react. But last point I'd say with respect to -- and so that's why I talked about it, to Feddie's point, it could be choppy quarter-to-quarter. But I do believe as we manage our way through this, we should maintain net interest margin on average over the next number of quarters in this range of about 380 or so. And so to your point, Catherine, about thinking about deposit betas, as I said earlier, I think we've got this [Audio Gap] 2.75% to 3%. We've got deposit cost in that scenario going down to about 1.25%, which would be a beta that's cycled by our calculations of about 40%, which is very consistent with the beta that we achieved as the Fed was hiking during the last cycle.

Very helpful color and perspective. And then maybe the other side of it, on just loan yields, can you talk about where incremental new loan pricing is coming on today?

Catherine, this is Barry. It varies kind of dealing with the categories. I would say, outside of CRE, it's remained pretty consistent. We haven't seen a lot of changes there. I would say within the CRE category, it has gotten more competitive than it was earlier in the year and definitely more competitive than it was last year. And so the good news is there's a lot more deal flow. I was looking at the production for the last 4 quarters relative to the prior 4 quarters. And fourth quarter of '24 through the first 3 quarters of this year, our production is much, much stronger on the CRE side. Having said that, the pricing is more competitive. And so when you think about the spread, when you think about the origination fee, we've been yielding and that industry has really been yielding for quite a while.

It is getting more competitive just to the number of players who are, I would say, back in the market that hadn't been previously. And that's been pretty much true for this entire year. There's been a lot more opportunities. We've been pitching on a lot more deals. We probably have landed -- we have landed a few more deals than we did in the previous 4 quarters, but not as much as you would think based upon the number of opportunities. And we are landing those. They are -- the price is thinner on the spread and the price is thinner on the fee within the CRE category. The rest of the categories are pretty similar to the way they've been in terms of the competition and the rates that we're able to yield.

The next question comes from the line of Gary Tenner with D.A. Davidson.

A lot of my questions have been asked. But I wanted to just follow up on your comments around the recruiting in the quarter. As you think of the kind of producer or producer supporting hires, any kind of particular segment that you're leaning into? I think you talked that it's pretty varied geographically. But from a segment perspective, anything you're particularly leaning into or anything you're particularly focused on the deposit side in terms of the hires you made.

So in general, I'll say we really are focused geographically. We're focused on the markets that we feel present the best growth opportunity. And I've mentioned those previously, the Houstons, Atlantas, the Birmingham, Huntsville, Panhandle and South Alabama present in our mind and Jackson, Mississippi, frankly, but those present the best growth opportunities. So we're focused on our business lines in those markets. To date, I would say if we're focused in specific categories, we've had pretty good success on the equipment finance team, we've added producers in that, which we've talked about the last several quarters as being -- we're very pleased with the growth experienced in that business and are seeing good opportunity there. And we've had a really, really good approach and really nice team build there, and that's been an area of focus.

But I would say of the ones that I've mentioned earlier, 21 new hires, it is pretty evenly spread between CRE, corporate banking, commercial banking. We've even actually in a somewhat challenging market has created some opportunity on the mortgage front. In markets where we have not had a mortgage production side, we've added a handful of mortgage producers. So it's pretty well diversified across all the business lines that we serve with a little more focus on specific growth markets.

I appreciate the comments there. And then just on the deposit side, given the guide you gave for the fourth quarter, in terms of the public funds deposits, which are 13%, 14% of your total deposits, what's the repricing timing of that segment?

This is Tom. So with respect to the public fund balances, by and large, those are administered rate or floating rates, even indexed down. It's a really small percentage of those that are bid on some fixed rate for any extended period of time.

The next question comes from the line of Christopher Marinac with Janney Montgomery Scott.

Tom, you had touched a little bit on funding in some of the earlier questions, but I kind of wanted to ask at large. I mean, what is your thought about initiatives to fund the balance sheet the next couple of years? Should we expect to see the loan-to-deposit ratio around the sort of high 80s? Do you think it can trend differently? And I guess just is M&A a part of that funding strategy in the big picture?

So there's a lot there, Chris. It's a great question. I'll start off by saying that, as I said earlier, loan growth had outpaced deposit growth in the earlier part of the year, and we were -- in the first half of the year, and so our loan-to-deposit ratio had floated up to 89%. We really want to keep that in the mid-80s, mid to high 80s. We do not want that floating up into the 90s. And so yes, you should expect us to maintain that type of liquidity. As I said, we were really pleased with the execution of the promotional money market program in the third quarter. And I think we had -- so we had conducted a similar campaign in the third quarter of '24. And then fourth quarter '24 through second quarter of '25, we were not nearly as proactive in terms of promotional deposit campaign activity.

So to your point, do we have the opportunity to continue to fund deposit growth to match loan growth. We're very confident in our ability to do that. The way I think about that is going to a more sort of always-on approach in terms of the next promotional campaign, and there's certainly different and more proactive techniques that we can employ. The techniques we've employed have been reasonably conservative in that regard, and so pretty cost effective in bringing on new balances. But we're confident in our ability to fund loan growth cost effectively. And I guess I would maybe turn it over to Duane to address the issue to the extent to which that does or does not play into our view on acquisition opportunities.

Yes. Just a couple of notes. I mean one thing I did not mention when I was answering Gary's question a minute ago, the other element of that production staff has been on the treasury management side. So we have added treasury management talent. All of our RMs across our entire system have deposit growth goals. And Tom, you may have the number in front of you of commercial growth in the third quarter, but we have experienced solid commercial deposit growth as well, which has been part of that strategy. As we talk about our organic strategy, it's very focused on full relationship, including the deposit side.

And like I said, in the third quarter, we're very pleased with progress there. And as we bring on the new talent, that's -- of course, loan growth, deposit growth, they're all part of the strategy. So that's a key part. In terms of M&A, yes, deposits, core deposits, core funding, that's all part of the equation. And as I stated a bit ago, there is a lot of discussion going on out in the market. We're continuing to be very focused and very disciplined executing on our organic strategy and hopefully opportunistic when the right partner presents itself, and we'll consider that as it goes. And I would say, yes, deposits are a part of that consideration.

And I would just follow up then, Chris, to Duane's point. You look at the $370 million of deposit growth we had in the third quarter, it was pretty evenly balanced between personal and commercial. Commercial was something like $180 million or so. And then of the personal, that was pretty evenly mixed between the promotional campaign that I mentioned and then just fundamental organic growth.

This concludes our question-and-answer session. I would like to turn the conference back over to Duane Dewey for any closing remarks.

Thank you again for the questions, and thank you for being on the call. We look forward to getting back together at the end of the fourth quarter, and hope you have a great rest of the week. Thank you.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.